Apple vs. Exxon: Forget Size. Which One Is Better?

by Jeff Reeves | February 9, 2012 7:45 am

You’ve likely seen stories recently about how Apple (NASDAQ:AAPL[1]) is now larger than Exxon (NYSE:XOM[2]) — at least measured by market capitalization, a simple calculation that multiplies share price times shares outstanding. As of this writing, Apple has a market cap of $440 billion, while Exxon is around $405 billion.

But what investors should care about isn’t a battle over size. The right question to ask is: “Which stock is a better buy?”

Well, both picks have a lot going for them — mammoth reach, dominance in their industry and huge brands. But let’s see how they compare in several key metrics to get beyond which one is biggest and decide which one is best for your portfolio.

Revenue: Exxon

No doubt, Apple is a sales machine. Revenue has exploded in the last five years, to about $108 billion in fiscal 2011. Few companies are in the $100 billion sales club. Automakers like General Motors (NYSE:GM[3]) and financial stocks like Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B[4]) largely populate the list. But guess who’s at the top of that list? Yup — Exxon, with over $450 billion in sales for fiscal 2011. Apple may sell a lot, but Exxon sells a lot more.

Revenue Growth: Apple

Even though Exxon leads now, there’s no guarantee that it will always be ahead of Apple. Quarterly revenue increases happen like clockwork at Apple, most recently with its report that fiscal first-quarter sales soared 73% year-over-year. When you consider that sales are up more than fourfold in the last five years — from around $24 billion in fiscal 2007 — despite the Great Recession, it’s hard to ignore Apple’s momentum. Exxon has been on the rise, too, but the truth is its $450 billion in revenue last year wasn’t even its best ever. The total still lags the $477 billion Exxon tallied from record oil prices in 2008.

Profits: Exxon

Apple’s fiscal 2011 earnings were some of the best in the history of Corporate America – almost $26 billion in profits during just one fiscal year. That’s a staggering amount. However, it doesn’t even come close to Exxon. It has recorded five of the seven largest corporate profits in U.S. history — with its fiscal 2011 total of $41 billion almost doubling Apple.

Profit Growth: Apple

Again, though, we must return to the history of these companies to see which has more growth. For instance, despite the $41 billion in profits for the 2011 fiscal year, Exxon’s top tally was $45 billion in 2008. Sure, profits have been on the rise — but they’re rebounding more than growing. Apple, on the other hand, has seen profits go nowhere but up in recent years. Earnings are nearly four times higher in roughly the same period — from $13 billion in fiscal 2008 to $44 billion in fiscal 2011. Exxon may be regaining speed, but Apple never slowed down.

Valuation: Tied

Let’s look past growth now and talk about value. When you look at Apple, it’s actually quite a good value — with a forward price-earnings ratio of around 11.5 based on 2012 forecasts. The average for S&P 500 components is around 15, meaning Apple could be a bargain. However, Exxon looks even better with a forward P/E of about 9.9.

The trick, however, is not to get too caught up in the headline numbers. After all, P/E ratios can vary widely from industry to industry. Compared to peers, Exxon isn’t as impressive. Chevron (NYSE:CVX[5]), for instance, has a forward P/E of 7.9. Apple doesn’t exactly have peers, but Research In Motion (NASDAQ:RIMM[6]) has a rock-bottom P/E of about 5.9. Enough said.

So is Exxon or Apple a better value? It’s hard to say since the comparison is (pardon the pun) apples to oranges. But both appear to be good values, even if it’s slippery to determine which one is the better value.

Cash and Debt: Apple

Exxon is one of the strongest borrowers on Wall Street, with the elite AAA rating from Standard & Poor’s. That’s because it holds only $16.7 billion in total debt backed up by $323 billion in assets. Exxon has $11 billion in cash and short-term investments, and $35.3 billion in long-term investments. Impressive, right?

Well, consider this: Apple has zero debt — with a staggering $30.1 billion in cash and another $67.4 billion in long-term investments. Exxon may get great rates on its corporate bonds, but Apple is in the enviable position of never needing to borrow a dime because of its massive bank account.

Brand Power: Apple

Let’s look beyond sales and profits for a moment. How does Exxon make money? By exploring for oil, refining it and selling gasoline (among other products). It’s a big business because energy is the lifeblood of the global economy. However, many consumers get sick and tired of feeling the pain at the pump — and blame Big Oil when gasoline prices rise. Throw in talk about fossil fuels contributing to global warming, and it appears Exxon isn’t a frontrunner for popularity contests on Main Street.

Contrast that to Apple, which sees long lines of customers eager to buy as soon as each new iPhone launches. People just can’t wait to give the company their money. Apple isn’t without bad press, of course — the fact that it gets filthy rich from cheap Chinese labor doesn’t sit well with some Americans. But by and large, Apple is a much more powerful brand than Exxon. Gas is a necessity we have to purchase whether we like it or not. The iPhone is an “insanely great” gadget that everyone covets.

Share Momentum: Apple

Here’s where we get to what investors really want to know: What’s Apple or Exxon stock going to do for their portfolio? Looking back over the past few years, Exxon stock can’t hold a candle to Apple. XOM did manage an impressive 50% gain from its 2010 low in July to its spring 2011 peak, outperforming Apple’s 35% gain in the same period.

But other than cherry-picking that period, Apple has trounced Exxon. So far in 2012, Apple is up 17% while Exxon is flat. In the last year, AAPL is up 33% vs. just 3% for Exxon. In the past five years, Apple is up 460% to Exxon’s 12%. Past performance doesn’t guarantee future returns, but the disparity here is very dramatic.

Verdict: Apple

Frankly, the discussion over whether Apple or Exxon is bigger is a waste of time. Market capitalization doesn’t reflect the fact that Exxon remains a significantly larger company measured by revenue or profits.

And fundamentally, the real question for investors has nothing to do with size. Plenty of small stocks are red-hot buys, and plenty of big companies are duds. The challenge is finding a company that’s on the way up, expanding its sales and profits.

Apple has that growth. It also has a great brand, a stock with a history of outperformance and a valuation that hints AAPL is bargain.